CBP Prep Course (overview)

by Andreas M. Antonopoulos

Download these slides: [Link]/aantonopworkshop

 Course Contents

During the course we’ll discuss all of these topics (and more):

Keys & Addresses Basics of Mining

History of Bitcoin

Blockchain Explorers Consensus

Units & Issuance

Monetary Characteristics Price Discovery & Markets

Transaction Basics Transaction Fees &

Confirmations

2
 WARNING

Do not send bitcoin to the addresses in these slides.

These addresses are only for display purposes.
Any bitcoin sent to them will be LOST

If you want to test, send small amounts of bitcoin to a

colleague’s wallet
History of Bitcoin &
What is Bitcoin
 History of Bitcoin
The first “steps”

“Satoshi Nakamoto” Second user Hal Finney Laszlo Hanyecz

publishes white paper joins network and buys 2 pizzas
starts mining for 10,000 BTC

October 2008 January 10, 2009 May 22, 2010

January 3, 2009 October 2009 December 12, 2010

Genesis Block is mined Bitcoin is sold for “fiat” Satoshi posts publicly
and P2P network for the last time
launched $1 = 1000 BTC and “disappears”
 Bitcoin / bitcoin / blockchain

Bitcoin
bitcoin blockchain
A protocol for a
decentralized The currency (token) The public ledger
peer-to-peer network issued as a reward in where the network
that creates consensus the proof-of-work records (transactions)
without needing a mining process. are written.
central authority to
provide trust.

6
User Stories
 Storyline

Bob Catalina
Alice

Alice lives in Europe and she’s fairly Bob lives in the US and runs an online Catalina is an Argentinian web
new to bitcoin. In this course, we’ll see bookstore. He has a lot of customers developer with clients all
Alice purchase her first bitcoin and use outside of the US and he accepts many around the world. Bob is one of
that bitcoin to buy a book from a US currencies for payment, including her clients.
bookseller. bitcoin.

8
 Alice uses cash to buy bitcoin from a Bitcoin ATM

Bitcoin ATM
Alice

Alice uses bitcoin to buy a book from Bob’s web store

Alice Bob

Bob uses bitcoin to pay Catalina’s invoice for web design

Bob Catalina
9
Alice buys bitcoin
from a Bitcoin ATM
 How do people acquire
bitcoin?

○ Earn - Get paid in bitcoin

□ Offer a service - cut hair, wash cars, drive taxi
□ Sell a product - homemade baklava, gourmet coffee, keychains
□ Wages - ask your employer to pay part of your wages in bitcoin - [Link]
○ Buy - Exchange national money (fiat) for bitcoin.
□ From an exchange - a company offering a service for buying and selling bitcoin
□ From a bitcoin ATM - a vending machine selling bitcoin for cash
□ From another person directly, for cash - find them at a meetup or a site like
[Link]
○ Trade - Trade your belongings for bitcoin
□ Sell your car for bitcoin
□ Sell your house for bitcoin

11
 €80 cash

Alice uses cash to buy bitcoin from a Bitcoin ATM

Bitcoin ATM Alice

0.026845 BTC

12
 Bitcoin ATM Vending Machine

13
 =

? BTC

How much bitcoin does 80 EUR buy?

 Bitcoin’s “Price”

See: [Link]

15
 Price Discovery and Markets

Order Book: Hundreds of orders at different prices

16
 Bitcoin ATM calculates the
exchange rate

€80 How does Alice

receive the BTC?

1 BTC ≅ €3,000

17
 Bitcoin
A public deposit box

Anyone can deposit

Private Key A Bitcoin Address

Like a very long PIN, Used to identify where

only the owner can unlock to deposit the payment

18
37LRvHjJdhdEergQEJEduREAtuRBF8dLL7

Alice shows a bitcoin address to the ATM

 Alice buys Bitcoin from a
Bitcoin ATM

€80

1 BTC ≅ €3,000
0.026845 BTC
20
 Bitcoin Transaction

37LRvHjJdhdEergQEJEduREAtuRBF8dLL7
● Donec risus dolor porta venenatis
Bitcoin ATM
Lorem ipsum dolor sit amet at nec at
adipiscing
●
●
Pharetra luctus felis
Proin in tellus felis volutpat
Amount: 0.026845 BTC
(2,684,500 satoshi)

ATM sends 0.026845 BTC to Alice’s wallet

 Bitcoin Units

The only unit that exists in the system is the satoshi

Everything is stored as amounts of satoshis

One bitcoin = 100 million satoshis

22
 Converting Units

bitcoin millibit (mbit) bit satoshi

1 bitcoin is 1 1,000 1,000,000 100,000,000

1 millibit is 0.001 1 1000 100,000

1 bit is 0.000001 0.001 1 100

1 satoshi is 0.00000001 0.000001 0.001 1

23
Alice buys a book from
Bob’s online store
 0.01123458 BTC

Alice uses bitcoin to buy a book from Bob’s web store

Alice Bob

25
26
 Alice’s wallet constructs a
transaction

27
 Transaction Basics

TRANSACTION

● Donec risus dolor porta venenatis

INPUTS
Lorem ipsum dolor sit amet at
nec at adipiscing
●
●
OUTPUTS
Pharetra luctus felis
Proin in tellus felis volutpat

28
 Transaction Basics

● Donec risus dolor porta venenatis

Lorem ipsum dolor sit amet at
INPUTS
nec at adipiscing To Pharetra
●
●
Alice: luctus felis 0.026845 BTC
Proin in tellus felis volutpat

ATM pays Alice 0.026845 BTC

● Donec risus dolor porta venenatis

0.026845 BTC
Lorem ipsum dolor sit amet at
nec at adipiscing
●
●
To Bob: 0.01123458 BTC
Pharetra luctus felis
Proin in tellus felis volutpat

Alice pays Bob 0.01123458

29
 Transactions and Change

To Bob: 0.01123458 BTC

● Donec risus dolor porta venenatis

0.026845 BTC
Lorem ipsum dolor sit amet at
nec at adipiscing
●
●
Pharetra luctus felis
Proin in tellus felis volutpat

To Alice: 0.0155808 BTC

30
 Alice’s transaction,
on the blockchain

Browse (case sensitive):

[Link]/AliceTx
31
 Part One Recap

We’ve learned about

○ Bitcoin history
○ Keys and addresses
○ Markets, exchanges, and bitcoin pricing
○ Units of account (satoshis)
○ Transaction basics: inputs, outputs, change
○ Using block explorers

32
 Part Two

In the next part we’ll cover:

○ Transaction fees
○ Aggregating transaction inputs
○ Issuance and monetary policy
○ Mining and blockchain basics
○ Consensus
○ Forks

33
Alice buys a book from
Bob’s online store (continued)
 Outputs and Inputs (review)

● Donec risus dolor porta venenatis

Lorem ipsum dolor sit amet at
INPUTS
nec at adipiscing To Pharetra
●
●
Alice: luctus felis 0.026845 BTC
Proin in tellus felis volutpat

ATM pays Alice 0.026845 BTC

● Donec risus dolor porta venenatis

0.026845 BTC
Lorem ipsum dolor sit amet at
nec at adipiscing
●
●
To Bob: 0.01123458 BTC
Pharetra luctus felis
Proin in tellus felis volutpat

Alice pays Bob 0.01123458

35
 Transactions and Fees

To Bob: 0.01123458 BTC

● Donec risus dolor porta venenatis

0.026845 BTC
Lorem ipsum dolor sit amet at
nec at adipiscing
●
●
Pharetra luctus felis
Proin in tellus felis volutpat

To Alice: 0.0155808 BTC

Inputs: 0.02684500 - Outputs 0.02681538 = Fees 0.00002962

“Miners, keep the rest of the change as a fee”

36
 Change and Fees

What if Alice’s wallet didn’t include a change address for her change?

To Bob: 0.01123458 BTC

● Donec risus dolor porta venenatis

0.026845 BTC
Lorem ipsum dolor sit amet at
nec at adipiscing
●
●
Pharetra luctus felis
Proin in tellus felis volutpat

OOPS No Change Address

Inputs: 0.02684500 - Outputs 0.01123458 = Fees 0.01561042

37
 Transaction Fees

Why are there transaction fees?

□ Space for transactions is limited
□ Fees determine who values their transaction
□ Fees support mining as issuance declines
Are transaction fees static or dynamic?
□ Is there a minimum required fee?
How do transaction fees affect the time it takes for my
transaction to settle?

38
 Transaction Fees

39
 Miners Add Transactions
to Blocks

Miner

Miner’s Mem-Pool Miner’s

Of Unconfirmed Transactions Candidate Block
 Alice’s transaction on the
Bitcoin blockchain

41 Browse: [Link]/Block344
 Alice’s transaction on the
Bitcoin blockchain

42 Browse: [Link]/Block344
 Alice’s transaction on the
Bitcoin blockchain

Block 560349 Block Mined on 1/27/2019, 12:53:18 PM GMT-3

Bob ships Alice’s book 6 confirmations after her transaction is mined.
In this case, 6 blocks took 1hr 39min to mine
...
Block 560346 Block Mined on 1/27/2019, 11:37:17 AM GMT-3
… 20 minutes
Block 560345
Block Mined on 1/27/2019, 11:17:11 AM GMT-3
… 3 minutes

Block 560344 Block Mined on 1/27/2019, 11:14:29 AM GMT-3

Alice’s Transaction
e31e4e214c3f436937c74b8663b3ca58f7ad5b3fce7783eb84fd9a5ee5b9a54c

Browse:
Block 560343

43 [Link]/Block344
 Alice Tx Timeline

Alice’s Wallet Miner

Creates, signs and transmits A miner successfully mines a new block,

transaction paying Bob’s address $40,
which contains Alice’s transaction.
or 0.01123458 BTC

Alice’s transaction has “1 confirmation”

+10 min

+15 sec +60 min

Bob’s Wallet
Bob’s Wallet
Bob’s wallet receives 5 more blocks,
Bob’s wallet receives the transaction
mined on top of the one containing Alice’s
from the Bitcoin network.
transaction.

The transaction is unconfirmed (not

Bob’s store policy is to ship books after 6
mined in a block yet)
confirmations. Bob now ships the book to
Alice.

44
Bob pays Catalina’s invoice
for web development work
 Bob’s Payment Options

International Wire Transfer (bank)

Western Union
Paper check?
Bitcoin
46
 $10,000 ARS invoice

Bob uses bitcoin to pay Catalina’s invoice for web design

Bob Catalina

0.07811758 BTC

47
 Aggregating Transaction

0.01131000 BTC
To Catalina:
0.01118550 BTC
0.01121800 BTC 0.07811758 BTC
● Donec risus dolor porta venenatis
Lorem ipsum dolor sit amet at
0.01131000 BTC
nec at adipiscing
●
●
Pharetra luctus felis
Proin in tellus felis volutpat

0.01123630 BTC To Bob (change):

0.01124000 BTC
0.00055557 BTC
0.01123458 BTC

Bob pays Catalina 0.07811758 BTC

48
 Aggregating Transaction

Bob pays Catalina 0.07811758 BTC

49
The Blockchain
 History of the Bitcoin
Blockchain

Genesis Block
Block #1 Block #2
(Block #0)

51
 Chained Blocks

Reference to Reference to Reference to Reference to

Previous Block Previous Block Previous Block Previous Block
Hash #0 Hash #1 Hash #2 Hash #3
Genesis Block #0
BLOCK #1 BLOCK #2 BLOCK #3 BLOCK #4

Transactions Transactions Transactions

□ Each block references the hash of the previous, or “parent,” block

□ The sequence of hashes linking each block to its parent creates a chain
□ Creates a tamper-evident log; combined with proof-of-work (i.e. an energy cost for making changes)
results in the characteristic of immutability

52
 Monetary Policy

53
Halving

● Every 210,000 blocks

● Bitcoin issuance is “halved”
● 2009-2012: 50 BTC per block
● 2012-2016: 25 BTC per block
● 2016-2020: 12.5 BTC per block
● 2020-2024: 6.25 BTC per block
● ...
 Mining Incentives

Miners currently receive two types of rewards in return

for the security provided by mining:
(1) new coins created with each new block, and
(2) transaction fees from all the transactions
included in the block.

56
 Alice’s transaction on the
Bitcoin blockchain

57 Browse: [Link]/Block344
Coinbase Transaction
Mining
 SHA-256 Hash Algorithm

Hash Algorithm: Compresses any amount of data into a fixed-length “fingerprint”.

d348 ffee f0d1 9073 f17d 2430 9c6f 8319 c200 6083 ff55 286b 68c5 6665 fecf 64e5 aac1 54fd 1303 4da9 8c29 6d0e e987 d3db 5843 91da cb32 c040 ca61
d7e6 1882 5695 abb7 9257 54d6 ca37 e9f5 357a ce2c 51c9 6e38 42da 7186 56c2 098b 9300 a796 072c 5098 c86e 7574 19af 7f7a 2caa d7c3 34de c33c
467a fbf4 d2dd 06a9 c75c a74b e0a6 a72c 99b5 4938 3142 8a83 7332 8bfe cb2d 6734 51ca 74f7 9015 2b23 a90b f8bb bc3d 4ad0 93fb ffe7 5de2 3360
ca9a 1112 44fd f2b0 1a06 47fe 30f5 d1d1 e152 d32c fc4f eff8 1b78 f63b 4c61 86f8 8e30 3ba3 3984 b5f5 55c3 d818 8f87 034e 379f 1a15 8a83 7af3 059e
d993 be5e d198 0f10 25b9 e13a 6971 ccec 2ef6 14a7 67ae 7d34 0584 4b1f e52d f303 e65f 5108 7618 761c 94af 07b7 43dd 336b a254 7037 7e22 c14e
9bd4 94df a55b 1e2a cb56 7a04 e974 4205 1f60 7df5 4916 4438 c0c4 5961 6372 892f 685c 2693 a706 b657 f331 1992 81da b8a4 eb61 34be a049 3567
6457 7150 478c 4771 921c b04e 4874 a104 8af2 793d fbbe 8416 47c9 628d 2b21 a477 83f4 8159 251a 7306 718d 9eb2 f4b3 2e16 0f1f a845 37e4 161a
d7d3 9ded 6398 06db b282 63bb e14a f452 3c9b 8de0 d6e6 482c 510d 9c91 6fff d69a 6aa1 ed21 350d 7f30 dbe0 4509 9ef1 abbd 75c6 c4f2 f5e5 746f
e52d fd7c 2ce8 0b4e c9a4 5eb3 56ed 009a 4e3c 76c8 2ac5 f5ea 43e9 3c50 9c06 c976 a484 bdbd 811b e302 ddd7 5b31 6bc6 5482 c0d1 9c1d f979 daa9
b943 0047 8975 de56 3c81 ee18 beb1 0cdf 31a9 004a 6f07 273b db40 805b 4be4 ef7d 5377 fe8c 10d2 192a 8168 34d2 6e21 2da3 61a2 24d5 1a73 fe1c
7ee4 1b39 1cb0 da5e 533d 86ed 865f 562c 5330 bc8d 508d 9af6 d874 ebe9

SHA-256

e31e4e214c3f436937c74b8663b3ca58f7ad5b3fce7783eb84fd9a5ee5b9a54c 256 bits

60
 Small change in input
Big change in output

“I am Satoshi” => ef2cdaa37271e1bea8e95b2b9ec15209f84e5eb3583449b4b4b8e7f2a18d72b9

“I am Satoshi!” => 1da78803987e56886194d1e1b9ba8bfd216be4c607b0cfef7eeb05689871b8a7

"I am Satoshi 0" => 972c421e91226b24a7a08b3099e3cebe893e5d111804d0f464f8cf472d09e1c9

"I am Satoshi 1" => 7b1b1f24624ef8821c7fb6c95a4e0efeb4d68dac80953cdf903b3b77f086af4b

"I am Satoshi 2" => 36c99755599d8b4bc21616c9e770c873885ad3fd4b2e4094abe9f19ce983d4cd

 Hashing to a target pattern
"I am Satoshi 0" => 972c421e91226b24a7a08b3099e3cebe893e5d111804d0f464f8cf472d09e1c9
"I am Satoshi 1" => 7b1b1f24624ef8821c7fb6c95a4e0efeb4d68dac80953cdf903b3b77f086af4b
"I am Satoshi 2" => 36c99755599d8b4bc21616c9e770c873885ad3fd4b2e4094abe9f19ce983d4cd
"I am Satoshi 3" => a3a63c129e48e8874b4a31492436da50383cee7141d528cd1b02840e2d5a7e73
"I am Satoshi 15" => 0197a2cd275bf35803843b24f8260d8a842ae0a397e46bd4d8c81b9a8abe00e7
"I am Satoshi 34" => 0256b62b457a82abd81b4bb5039716f03a967997ca7e8bae9bddf13bbdb617a4
"I am Satoshi 35" => 0990b62dd5583aa77949353eb2e91e19a778f2ad5c69248b4d5c252db4576347
"I am Satoshi 48" => 0ba9d296d586e859eaa3f4edbde4b89e6bfcec349ea7747de6fb1451b6fd0733

"I am Satoshi 303" => 00696441ac9b9ec853eb288f3c33e31daddcc1857a88bcfe4efebb4b4385fd9d

"I am Satoshi 3485" => 0003ed2483cc7a0e192ca396ccb6cc3e2c962435da299001aa7f98f6bc6da5f2

"I am Satoshi 141789" => 0000d30318e5e56d9decc69ea6ca7059ac28966b8d95c95add9c08e538aa957d

"I am Satoshi 843944" => 000009a332e0ca596a776fd656ca9cb277cf84bd596dbf1fde6e25eddb740d31

"I am Satoshi 60994009" => 0000009a8895b9260a2f4dd5147f932acb64091ad28a3087b2e6f764f32d68af

"I am Satoshi 94203058" => 0000000013b2a9b2db111be18f7fbe4bd68cf0a885bce051c6ec6f260f446e46

"I am Satoshi 11116500145" => 000000000bbe916434baf4521260f5ba1e860d9ccc16a7566eee03663bc12741

 Mining Farm

63
 The Block Hash

64 Browse: [Link]/Block344
Q&A
 Thank you!

CBP Prep Course

Find a study guide at [Link]
 Exercises

Using a block explorer look up Alice’s transaction to Bob ([Link]/AliceTx)

□ How many inputs and outputs does Alice’s transaction have?
□ Which output is the change output? How can you tell?
□ How much change did Alice get in BTC?
□ How much is Alice’s change in satoshi?

Click on the input of Alice’s transaction to find Alice’s transaction with the
Bitcoin ATM
□ How many inputs and outputs does this transaction have?
□ How many milibits did Alice receive from the ATM?
□ What was the effective exchange rate that Alice received for her 80EUR?

What was the price of 1 bitcoin on the day you started working here?
 Answers

○ Alice’s Tx has ______ input(s) and ______ output(s)

○ The #____ output is change
○ Alice received ________________________ BTC as change
○ Alice received ________________________ satoshi as change
○ The Bitcoin ATM Tx has ______ input(s) and _______ output(s)
○ Alice received ________________________ millibits from the ATM
○ The effective exchange rate Alice got was 1 BTC = ______________ EUR
○ According to _____________________ the price of 1 bitcoin on the day I
started working was ___________________________.
 Answers

○ Alice’s Tx has 1 input(s) and 2 output(s)

○ The 2nd output is change
○ Alice received 0.0155808 BTC as change
○ Alice received 1,558,080 satoshi as change
○ The Bitcoin ATM Tx has 1 input(s) and 2 output(s)
○ Alice received 26.845 millibits from the ATM
○ The effective exchange rate Alice got was 1 BTC = 2980.07 EUR
○ According to _____________________ the price of 1 bitcoin on the day I
started working was ___________________________.
 Advanced Exercises

○ How many inputs does Bob’s payment to Catalina contain?

○ How much fee did Bob pay for that transaction?
○ Which block contained Bob’s payment to Catalina (ie. 1 confirmation)?
○ How much time did it take until that transaction had 6 confirmations?
○ How many other transactions were in the same block as Bob’s payment to Catalina?
○ What was the amount paid to the miner in the coinbase transaction of the block containing
Bob’s payment to Catalina?
○ What was the block hash of that block?
○ How many zeroes (in hex) in the beginning of the block hash of that block?
○ What was the amount of the block subsidy and how much were the fees in that block?